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5 Apr 2022

Crypto Tax In India: Everything You Need To Know

Deepan Datta

India has introduced taxes on income from crypto assets, giving much-needed clarity on the taxation of cryptos in the Union Budget for 2022-2023. The regulatory guidance on tax furthers the mainstreaming of the excitement of this emerging asset class with over $6B worth of investments in India. It shows the government’s intent to take a business-friendly approach while protecting the interests of consumers and the exchequer. 

Let’s break down what the union budget says on Virtual Digital Assets (VDAs) taxation. 

Section 115BBH: Tax on Transfer of Virtual Digital Assets

To include the provisions to tax crypto transactions in India, the government has introduced Section 115BBH under the Income Tax Act 1961. 

The section deals explicitly with the issue of taxing income from the transfer of any virtual digital asset, including cryptos and non-fungible tokens (NFTs). 

First, let’s look at the definition of crypto assets in the Income Tax Act 1961. 

“Any virtual digital asset generated through cryptographic means, by whatever name they are called, carries a digital representation of value and can be exchanged with or without consideration.”

Crypto gains to be taxed at 30%

Under Sec 115 BBH, realized gains from the transfer of any virtual digital asset, whether held for a short or a long-term, will be taxed at a flat 30% rate. Transfer of virtual digital assets means both crypto-to-fiat and crypto-to-crypto transactions. 

For example: Suppose you bought crypto assets for ₹1,000 and sold the same at a price of ₹2,000. Then, you will be required to pay 30% tax on ₹1,000 (income earned from the transaction) plus applicable surcharge and cess. 

Cannot Set-off Losses Against Profit

You cannot set off losses from the sale of crypto assets with the profit from another coin. For tax computation, each transaction should be considered separately. For example, in two different crypto transactions involving BTC and SHIB, you made a profit of ₹ 3,500 on BTC trade and a loss of ₹ 500 on SHIB trade. 

As per the tax rule, you cannot set off the loss of ₹500 against the profit of ₹ 3500 from BTC trade. Your entire crypto tax liability will be on the profit from BTC trade, i.e., ₹3,500. 

However, there is one exception to this rule. You can set off losses against the profit if the loss is incurred on the same coin from which you have made a profit. For example, in two BTC trades, you have a profit of ₹ 5000 on the first trade, but incurred a loss of ₹ 1000 on the second.  Your total tax liability will be on the net gain amount, i.e., ₹ 4000. 

No deduction allowed

The proposed section doesn’t allow any deduction for any expenses other than the acquisition cost (trading fee) while computing net income from the transfer of virtual digital assets. Also, you cannot set off or carry forward losses arising from a crypto investment against profits to subsequent years.

Therefore, the total tax on crypto = (Sale proceeds – cost of acquisition and fees)*30%.

Disclaimer: This is just a thumb rule, not tax or legal advice. Users should independently consult with their advisors/consultants before making tax-related decisions or positions.

The new amendments to the income tax will be applicable from the next financial year, 2022-23. 

Crypto gift tax

Further amendments were made in the Income Tax Act to tax crypto gifts at 30% on the hands of the recipient.

For example, if someone gifts you BTC worth ₹1,000, you will be required to pay ₹300 (30% of the gift value) as tax while filing the IT return or advance tax. 

Finance Minister, Nirmal Sitharaman said in her budget speech:

“No deduction in respect of any expenditure or allowance shall be allowed while computing such income except cost of acquisition. Further, loss from transfer of digital assets cannot be set off against any other income.”

“Gift of virtual digital assets is also proposed to be taxed at the hand of the recipient.”

FAQs on Crypto Tax in India

What are virtual digital assets?
The government has classified cryptocurrencies as virtual digital assets (VDA). As per the Income Tax Act definition, any asset generated through cryptographic means, by whatever name they are called for, and carries a digital representation of value will be termed a virtual digital asset. 

At present, the scope of the definition includes both cryptos and non-fungible tokens (NFTs) 

Do I have to pay taxes on my crypto?
Yes, you have to pay a flat 30% tax on the profit generated from trading and investment in crypto assets. 

How do taxes work with crypto?
All types of gains arising from a crypto transaction are taxed at 30%, irrespective of your income tax slab and period of holding. 

If the overall tax liability, including that from the crypto transfer, is more than or equal to ₹10,000 in a financial year, you will be required to pay advance tax as per due dates.

Is the 30% tax for profit or the whole amount or just on the profit?
Only on the gains that you make from the sale of cryptos. Remember, you cannot set off losses against the profit made on other coins. 

How can I avoid getting taxed on crypto?
The tax measures announced by the government on cryptos are comprehensive, and it is unlawful to evade taxes.

Who will pay the tax on crypto transfers?
It is the investor’s responsibility to pay the total taxes on crypto transfers before the due date. 

We need to pay the tax on the withdrawn amount only, right?
You need to pay taxes on profits realized on crypto-to-fiat and crypto-to-crypto transfers regardless of whether the money lies in your CoinSwitch wallet or not. 

What is the cost of acquisition?
According to the  Income Tax Act, the cost of acquisition includes any trading fee or transaction fee charged by the cryptocurrency exchange. 

Can we avail of any deductions of crypto tax in India?
Except for the cost of acquisition, you cannot avail of any deduction while computing your crypto tax liability. Further, you cannot set off or carry forward losses arising from a crypto investment against profits to subsequent years.

From when will this policy become effective?
The new taxation policy on the transfer of virtual digital assets will be effective from 1 April 2022. 

Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.

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Deepan Datta

Content Writer

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